FI 393 Lecture Notes - Lecture 23: Capital Structure, Financial Statement, Current Liability

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harlequinsalmon729

17 Jul 2019

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Document Summary

Long-term debt to capital structure (long-term debt)/(shareholders" equity) Leverage ratios: measures the long term component of capital structure. Times interest earned (profit before taxes+interest charges)/(interest charges) Leverage ratio: indicates the ability of the company to meet its annual interest cost. Coverage of fixed charges (profit before taxes+interest charges+lease charges)/(interest charges+lease obligations) Leverage ratio: a measure of a company"s ability to meet all of its fixed charge obligations. Measures the short-term financing portion versus that provided by owners price/earnings ratio (market price per share)/(earnings per share) Other ratio: shows the current markets evaluation of a stock based on its earnings; shows how much the investor is willing to pay for each dollar of earnings dividend payout ratio (annual dividends per share)/(annual earnings per share) Other ratios: indicates the percentage of profit that is paid out as dividends. Dividend yield on common stock (annual dividends per share)/(current market price per share)

Related Questions

Which of the following is an indication of a firm's risk with its capital structure?

Indifference point

Coefficient of variation

Earnings per share

Net operating income

Weighted average cost of capital

Which of the following is an advantage of debt financing?

Interest charges on debt is very minimal.

Interest charges on debt are tax deductible.

Interest charges on debt are based on the net income of the firm.

The higher the interest charges, the lower the bankruptcy costs.

Firms that are entirely debt financed have to pay very minimal taxes.

Which of the following is an example of business risk?

Default risk

Prepayment risk

Strategic risk

Currency risk

Equity risk

The percentage change in earnings per share (EPS) that results from a given percentage change in sales is known as the _____.

degree of financial leverage

degree of operating leverage

degree of working capital leverage

degree of current asset leverage

degree of total leverage

viridianrhinoceros464

Which of the following statements is true of the optimal capital structure?

It is found by determining the debt-equity mix that maximizes expected EPS.

It simultaneously maximizes EPS and minimizes the WACC.

It minimizes the cost of equity, which is a necessary condition for maximizing the stock price.

It simultaneously minimizes the cost of debt, the cost of equity, and the WACC.

It should have the combination of debt and equity thatwill maximize the price of the firm's stock.